Am I Saving Too Much For Retirement? Plan With The Tax Man podcast

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Am I Saving Too Much For Retirement?

6d ago 16:03

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Are you saving so much for retirement that it’s squeezing your life today? In this episode, we’re answering a smart viewer question about finding the right balance between preparing for the future and living fully in the present.

Important Links: Website: http://www.yourplanningpros.com

Call: 844-707-7381

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Transcript:

Marc:

Are you saving so much for retirement that it's squeezing the life today out of you? And in this episode, we're going to answer an interesting question from a listener about the right balance between future savings and living in the moment. Am I saving too much for retirement? Let's find out this week here on Plan With The Tax Man.

Hey, everybody. Welcome into the podcast. Thanks for hanging out with Tony and myself as we talk, investing, finance and retirement. Of course, Tony is a CPA, CFP, and an EA of 30 plus years and the big kahuna over there at Tax Doctor Inc. And if you guys got questions and need some help, reach out to him at yourplanningpros.com before you take any action from something, from our podcast or any others, you always want to check with a qualified professional with the experience to help you get to and through retirement. And that is Tony. So yourplanningpros.com or 844-707-7381. Tony, my friend, is there such a thing as saving too much for retirement? And let's talk about it. How you doing?

Tony Mauro:

I'm doing good. It's post tax season and I figured this would be a good topic because we don't hear this that much, but it is possible to be doing too much of this.

Marc:

Okay.

Tony Mauro:

And normally we're always talking about saving more, saving more.

Marc:

Right. Yeah, yeah. That's why I thought it was kind of an interesting question. So here's the question from the listener. He says, "My wife and I bring in about $200,000 a year." Very nice. I'm assuming obviously that's combined, wife and I.

Tony Mauro:

Yeah.

Marc:

And he says, "We max out our two 401Ks and HSA, a 457B and still put some into brokerage accounts." Very cool. Right? He's doing a very good job.

Tony Mauro:

That's good.

Marc:

Yeah.

Tony Mauro:

Yeah.

Marc:

He said, "Yet I still feel like, honestly, sometimes we live paycheck to paycheck." Very interesting. "We also are not living in our dream home, just FYI, because I've prioritized retirement savings versus a bigger chunk down for a down payment or a mortgage or whatever. So my question is are we saving too much for retirement? I feel like it would be nice to live a little bit more in the moment." So that's the question, Tony. So, I mean, the first thing that jumps out to me is does this gentleman have a plan because... or is because we've been kind of beat up in the head to say save, save, save, like you just said a minute ago... Has he been doing all that without really truly knowing what his numbers look like?

Tony Mauro:

Exactly. And that's what comes to my mind, is if you're asking this question, obviously you must not have a plan other than-

Marc:

Save.

Tony Mauro:

... the only plan is I'm just saving, saving, saving.

Marc:

Right, right.

Tony Mauro:

And I think if we zoom out a little bit, the thing is, well, there's not a whole lot of risk for over-saving, but there can be some because you're feeling like you're feeling.

Marc:

Yeah.

Tony Mauro:

In other words, you feel like you're not living enough, you're making maybe too many sacrifices. And so it's not maybe a financial risk, but it's an emotional one for sure.

Marc:

Right. Okay. Yeah, yeah. That makes sense. Well, we've got this... and let me know what you think about this. So I guess the question for the listener would be how can you tell, right? Without coming in, sitting down with a qualified professional, obviously running the numbers. That's certainly going to be the easiest way to do it.

Tony Mauro:

Right.

Marc:

But how can you tell if you're ahead of schedule financially? What do you think about those online benchmarks and online things that you can use? Like we've got one from T. Rowe Price here. We'll throw a link into the show notes description this week if people want to go check that out for themselves. Just click on the link. But it gives you that... How much do you have from your salary going here and there and that kind of stuff. Do those things, are they helpful?

Tony Mauro:

I think they're helpful. I mean, if somebody's just asking me off the cuff, I point them to those types of things just as a benchmark.

Marc:

Okay.

Tony Mauro:

I always tell them, keep in mind benchmark means benchmark and if you really want to narrow it down for you specifically, that's when I think you need a full-fledged plan because I think that's what's really going to help you the most, but at least it can get you started.

Marc:

Yeah, I mean, it's like the back of the napkin math when you're doing how much withdrawal rate and that kind of thing. It gets you kind of a launching pad. And, Tony, you and I are about the same age. We heard growing up we needed to put 10% away in order to be ready for retirement. Generations now. I mean, my daughter, she's 28, so she's being told 15% and even any kids that are like 20 now are being told maybe 20%. Right?

Tony Mauro:

Right. Yeah.

Marc:

So how do you kind of balance that paycheck to paycheck feeling in life? I mean, it's tough.

Tony Mauro:

It is tough. And that's why having a moving and active, live, plan is going to help you the most because everybody's going to be different. I think that depending on what you want, long term, is going to determine that percentage.

Marc:

Right.

Tony Mauro:

And I think just throw a blanket out there, it's probably a little too presumptuous there. But I think with the younger people, 20% seems awfully strong to me.

Marc:

Well, it seems tough to do, right?

Tony Mauro:

Yeah. And very tough to do for the young people if we told them that, they'd really have to... I mean they would definitely be feeling like this if they were trying to save 25%, something like that.

Marc:

Right. Yeah. And live. Right? Of course.

Tony Mauro:

And live, yeah.

Marc:

Yeah. Well, all right, so for the listener here... So he's got a lot coming in, he's putting a bunch into different accounts. Right? If you're saving too aggressively, right? I mean, given into the fact that we take a plan... Let's say this person came in, you ran the numbers for them, okay? And we'll try to put some context to this. And you could certainly see that they were on target to be just fine based on the numbers he's already put away. How would you then counsel things. All right, let's kind of back this down? Or do we want to start looking at tax efficiency because we've saved so much or where would we go?

Tony Mauro:

Well, where we would start would be what their end game is and what the number looks like for them. And then start working backwards and use the planning software to basically show them, okay, well you're already going to hit what you just told me and then some.

Marc:

Right.

Tony Mauro:

So if that's still going to be your mark, let's start talking about some of your other goals that you feel like you've missed and let's prioritize those and let's start backing off the savings a little bit and put some towards those.

Marc:

When you say number, Tony, do you mean income? Do you mean what their assets would generate monthly for an income?

Tony Mauro:

That's what I mean there, yeah.

Marc:

Okay. Yeah.

Tony Mauro:

I mean, we'll start with what do you want monthly when you retire and then based on what you have in your nest egg now and forecast out what it's going to grow to...

Marc:

It could generate that, right, okay.

Tony Mauro:

It could generate that easy.

Marc:

Right.

Tony Mauro:

And then start going from there. And I would actually at least suggest to them if these other goals are important to you, you already know you're going to be okay when you hit the distribution stage in retirement. Let's start knocking some of these things out a little bit.

Marc:

Yeah.

Tony Mauro:

Because the thing I always point to... And I'm going through it right now with my sister-in-law who just retired at 65. And she's got a lot of health problems and she just had a recent bout in the hospital on dialysis, on a breathing machine.

Marc:

Oh no.

Tony Mauro:

Almost to a point where you don't know how long, of course, you're going to live is where I'm going with that.

Marc:

Right.

Tony Mauro:

And if you save it all to the end and something does happen like that, or worse, you pass away, what was it really all for? So I'm one of those guys that I like to balance, hey, you got to live a little now and take care of the future as well. But I think some people go the other way and this guy sounds like he's gone maybe too far the other way because he's asking a lot of questions

Marc:

Yeah and he's obviously interested in and maybe living a little bit more. And so that's kind of where I wonder. It's like, okay, well how do we go about breaking that down? Now, granted, obviously coming in and running the numbers, but for the sake of the podcast, sharing that with other folks, how do we go about accomplishing that? So do some analysis. Right? So I guess what you say. What's your current income level and then what's your current spending level? And is that where you want to be in retirement as well? Let's say it's $10,000 a month, just for an easy number.

Tony Mauro:

Yeah.

Marc:

Well, does what you've generated create $10,000 worth a month in income, which you were just talking about. And then of course people... We hear that, well, you're only going to need about 80% or 85% in retirement, but if you don't want to go backwards in lifestyle and you feel like you've not been living enough anyway, then I would say you want to keep it higher, correct?

Tony Mauro:

High. Yeah. I'd keep it at 100%.

Marc:

Okay. Yeah.

Tony Mauro:

And just keep it high and we can always adjust it downward, but I find that most of the time... And we've talked about it before, that your expenses and living don't go down quite as much as you thought when you were young and dreaming about it. When you get there, you don't want to back that off too much.

Marc:

No, for sure. So determine if you're saving too aggressively, right? Look at your rates, look at some of the things that you're bringing in. Again, that monthly income. What's it generating. Then start looking at... I don't know, maybe that's where you can use some of the automation, right? If this person is still working, then maybe you can back down contributions-

Tony Mauro:

Back down.

Marc:

... or does that make sense because you want a dollar cost average still too? Right? So it's an interesting math question.

Tony Mauro:

It's an interesting math question. And there's also got to throw in taxes there because obviously if you back down some of this pre-tax stuff, if he's got it. His taxes are going to go up a little bit. So it's a delicate balancing act, but I think it can be done in a tax efficient manner with some help and planning.

Marc:

So if you were going through and trying to help this person, they came into the office, the first thing you would do is start running the numbers, put all these things in play into your software that he's got because he's got a lot, which is very cool.

Tony Mauro:

Yeah.

Marc:

And then see where they're at and then what? Tax efficiency would be next, and then what's after tax efficiency? Maybe the legacy side or what?

Tony Mauro:

I would say after the tax efficiency, I would ask them about the legacy side, what their plans are there and if we're still in good shape with what they want to do there. And then I would make them list their goals of some of the things they want to do between now and the time they do retire and let's start tax efficiently trying to make that happen.

Marc:

Well, he mentions the dream home. He mentions the dream home. So that could be interesting too, right? So it's like is that still high on the list?

Tony Mauro:

Right.

Marc:

Let's say this person is in great shape, they have saved maybe over amount to what their goal, their target, was. Not that, I guess, there's such thing as being over. But they've hit their target, but they kind of want to take the dream home into account. So, again, you got to factor that in, right? Because we know that pricing is still high for homes. Interest rates are higher, what are you going to get for the old one? What's it going to cost you for the new one? And, again, this is where that whole, complete, financial analysis is really going to come into play.

Tony Mauro:

It really will. I don't know anything about this couple, but I would ask them strongly, depending on what their age is, about that dream home unit. Is that really high on the list? Because that that's a large, large expenditure and maybe the home you're in is fine, especially if you own it. And maybe you want to take that money and do something else with that. But who knows. They might be dead set on something like that and then it's up to us try to help them make it work.

Marc:

Right, yeah. So plugging in a lot of numbers, doing the X's and O's trying to get it all there. So I guess to kind of circle back to the whole initial thing, can you save too much for retirement? I mean, it's probably not... I feel like fundamentally you got to say no, right? Because if you save too much, all you're going to be able to do is either enjoy yourself more in retirement or leave a nicer legacy to your kids, right?

Tony Mauro:

Yes. Yeah. And the true answer is no. I don't think you can ever save too much. I do think though that what we've just talked about and with him, he's feeling it... is don't neglect enjoying life a little bit along the way.

Marc:

Yeah, yeah.

Tony Mauro:

And that's where a plan is going to come in for sure because he's just -

Marc:

It was a while back, Tony, we did a... God, it's been a while. We did a personality type podcast and we talked a little bit about, I can't remember all of them, but one of them was the miser, right?

Tony Mauro:

Yeah, yeah.

Marc:

Not saying that this person's a straight-up scrooge or a miser, but the person that just got into such a groove and a rhythm of saving and being so aggressive that they forgot to enjoy life. Right? And I don't know that this person's that far, but he kind of framed his question that way. How do you work with people like that? How do you help them kind of see that it's okay to spend some of that money?

Tony Mauro:

I think the biggest thing for us is showing them, in real numbers, that they are going to be okay so they can wrap their head around it. Because, for many of them, depending on how they grew up and were raised, it's tough for them to change that. And it takes a little work and it takes some real discipline going the other way to spend some money. And most of my clients, it seems like, especially on the distribution stage, when they get older, they tend to automatically start wanting to not spend as much. And so if you're already there and then you go into retirement, boy, I would hope you wouldn't do that because you're even going to be worse off than you are now.

Marc:

Yeah.

Tony Mauro:

And, in other words, you're going to have all this money and you don't want to even go enjoy a penny of it.

Marc:

Yeah.

Tony Mauro:

Defeats the whole purpose of planning.

Marc:

Well, I mean, this is really where the black and white helps. The old rubber meets the road kind of thing, right?

Tony Mauro:

Yeah.

Marc:

Because no matter what your emotional mindset is, if we see the data, then our brain sometimes goes, okay, all right, now, all right, I see this now all laid out. Tony, you could run a stress test for this individual and go, okay, based on what you've saved, based on the goals we've talked about, the things you want to accomplish, this is when you would roughly expect to run out of money, age 100 or whatever.

Tony Mauro:

Yeah. Yeah.

Marc:

And then that gives, I think, that peace of mind to people to go all right. All right, maybe I can loosen up the purse strings now a little bit and go enjoy myself.

Tony Mauro:

Yeah. At least let them know that. And if they choose-

Marc:

Not to. Right. Yeah.

Tony Mauro:

... not to, then that's their decision at the end of the day.

Marc:

The good thing too is the spouse... He mentioned his spouse, obviously, you got the other person who also gets to see it and go, wait a minute now. Stop being so tight.

Tony Mauro:

Yeah. Right.

Marc:

I want to go have some fun too, or whatever.

Tony Mauro:

Yeah. Yeah. It's fun with when you have the spouses in there because, yeah, you might have a different personality there or somebody that says, I've worked all my life and now I want to go enjoy some things before something happens.

Marc:

Yeah. Yeah, don't be such a penny pincher or whatever. And again, not that any of that is wrong. Everybody's going to be different. Just based on this person's question, he seems like he's realizing, Hey, we've done a really good job saving, but I'd like to kind of enjoy life a little bit more. The thing that worried me a little bit most was I feel like I'm living paycheck to paycheck and it's like you're making a good salary. So, yeah, I mean, run the numbers. Look at what you're spending each month. Look at what you're saving because, I mean, there could be some expenditures that are out of control too, right? And it's not hard to do in today's world, right? It seems like Amazon shows up at everybody's house every other day.

Tony Mauro:

Yeah. Right. I just ordered some stuff before this podcast.

Marc:

Well, there you go. Proved my point.

Tony Mauro:

Yeah. Yep. Yep.

Marc:

So run the numbers. Come in, sit down, have a conversation with a qualified professional. Make sure you're talking with somebody like Tony. Again, he's a CPA and a CFP and an EA with 30 plus years of experience. So he's looking at the tax side of things, he's looking at the investment side of things, he's looking at the whole puzzle piece. And if you need some help, reach out to him. Yourplanningpros.com. That's yourplanningpros.com for that complimentary consultation and review. And don't forget to subscribe to us on whatever podcasting app you enjoy using. Apple, Spotify, and the like. Tony, thanks for hanging out, my friend. Always appreciate you.

Tony Mauro:

All right. We'll see you next time.

Marc:

We'll see you on the next episode of Plan With The Tax Man with Tony Mauro from Tax Doctor Inc.

Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.

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